The phrase “peace of mind” has appeared in so many commercials its meaning may be hard to discern, but investors rate it as the most important source of financial advisors’ value to clients.
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So asset management and digital advice giant Vanguard set out to nail down the main components of peace of mind through a
Advisors “have long struggled with quantifying and communicating the value of advice,” and the perceptions frequently tilt toward investment performance while underestimating “the benefits of financial planning, peace of mind and time-saving,” the study said.
To Shauna Mace, the head of practice management at wealth management custodian, technology and asset management firm SEI, the results show why service providers like her firm have developed more tools enabling advisors to give clients exact numbers for the many different metrics that tie into peace of mind. They also signal how advisors must “connect the dots and, I think, figure out how to integrate the client or the prospect into the conversation early and often” around peace of mind, she said.
The open-ended question of “what does ‘peace of mind’ look like today?” in clients’ routine meetings offers advisors a chance to “consistently and systematically deliver back evidence based on what you’re already doing,” Mace noted.
“As an industry, we need to get better at not just doing the work but having the conversations,” she said. “There’s no reason why we couldn’t then frame and package our delivery in a way that addresses those specific concerns.”
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Industry implications to a simple question
There is a basic concern that advisors and wealth management firms charge fees too high for the services they perform. But those firms can justify their fees in a number of ways, according to the report.
For some investors, that could mean presenting them with, say, a comparison of retirement withdrawals that use dynamic methods tied to the stock and bond performance in a particular timespan to the
Vanguard
Since “investors do not have a single framework for evaluating advice value or financial success,” advisors ought to “personalize how they communicate about value, use multiple relevant success metrics for each client and intervention and favor simple, clear measures over complex ones,” the report said.
“What is the value of financial advice? This question is of utmost importance to financial advisors, investors, employer plan sponsors, and the financial services industry in general,” it continued. “Advice value measurements enable financial advisors to surface the highest-value advice interventions and demonstrate their value to clients to retain and attract more business. Unadvised investors can use the insights to learn whether financial advice is right for them. Advised investors can feel more confident about their financial situation. Plan sponsors can use them to consider the benefits of adding financial advice to their retirement plan offerings. Finally, with the proliferation of hybrid and robo-advisor [firms] as well as artificial intelligence features, the financial advice industry can use them to understand its cost-to-serve models according to the value its varying services provide.”
To see the main takeaways for advisors and wealth management firms from Vanguard’s latest study of the value of advice, scroll down the page. For analysis of the firm’s last annual Vanguard Advisor’s Alpha study tracking the potential numeric value of comprehensive advice,
Note: The below data and analysis comes from Vanguard’s
‘Peace of mind’ relates to every source of value
The researchers broke the categories of advisor value down into four areas: tax-efficient investment gains, planning toward long-term goals, emotional benefits and time savings.
“Our survey results confirmed that investors value all four sources of advice,” the report said. “When asked why they get advice, at least half of advised respondents chose multiple responses corresponding to each of the four value buckets. When those choosing multiple answers were then asked to choose only a single reason, these four sources of value rose to the top. Interestingly, the dominant reason is ‘peace of mind.’ It’s often easy to dismiss the process-oriented aspects of advice, including the ongoing engagement that reduces stress and saves time, as secondary or intangible aspects of value. But when you think of it as the number one reason people get advice, it becomes clear that it’s important to think about how all the sources of value are measured and communicated.”
Finding the real meaning underneath a marketing phrase
Out of a half dozen choices inviting the participants to pick up to three responses reflecting how they experience “peace of mind,” support, trust and less reason to worry drew the largest share of votes. Vanguard defined “support” as, “I would know my advice provider is watching my investments and keeping me on track,”; “trust” as, “I would trust my advice provider to put my needs first,”; and “less worry” as, “I wouldn’t
Those results contributed to the report’s No. 1 lesson on communicating advisor value: “Every interaction is about peace of mind: emotional value grows when advice is ready at the moment it is needed; advisors can build trust by saving clients’ time; and sharing ongoing work helps clients see the full value.”
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Case in point: tax planning value
To effectively display the impact of their services on clients’ wealth, advisors must share more than one metric demonstrating the multifaceted value, according to the report. For instance, the clients overwhelmingly chose the numeric tax savings of a Roth
However, other measures showed up alongside that one at a substantial level, such as estimates of the annual added-income equivalent of the move, how much more likely it made them to reach their goals or a calculation comparing the tax savings to an IRA balance increase that would net the same bottom line in the end. The researchers found similar results for retirement in general, too.
“When we asked clients to select up to three metrics that best reflect progress toward a successful retirement, preferences were highly dispersed: No single metric stood out,” the report said. “This dispersion means advice providers should ask investors how they define retirement success and tailor communication to their specific preferences. Investors clearly value a multifaceted approach, underscoring the need for personalized retirement planning conversations. Just as patients rely on doctors to explain medical options in terms they can understand, clients depend on financial advisors to present plans and strategies in language that fits each client’s perspective, rather than focusing on complex investment analysis.”
The implications of the growing literature on advisor value
In a separate
“Financial advice provides value beyond portfolio management — namely, financial planning, peace of mind and time-saving,” last month’s report concluded. “Measuring these values requires a tailored, multimetric approach that considers client preferences and intervention specifics. Effective communication balances the use of simple, relatable metrics with the rigor of complex evaluations, ensuring that clients get the best recommendations and appreciate the full benefits of the advice they receive.”
